Russia Report: Build and Create: The Reinvention of a Screwdriver Assembly Industry - Pharmaceutical Executive


Russia Report: Build and Create: The Reinvention of a Screwdriver Assembly Industry

Pharmaceutical Executive

According to the Russian Federal State Statistics Service (Rosstat), the population of 141.9 million has been in decline since 1994 (apart from a rather negligible increase last year), and early mortality rates, especially for males, are troubling at the least: average male life expectancy is 62.8 years. Not to speak of Russia's famous lifestyle problems, such demographic blight is in large part attributable to treatable disease. Milos Petrovic, managing director of Roche in Russia, estimates that an astounding 80% to 90% of Russian patients, especially those with severe therapeutic needs, do not receive adequate treatment.

GSK Russia's area director Michael Crowe provides an illustration. "We estimate today," he says, "that out of 1.5 million registered asthma sufferers, only approximately 300,000 receive a modern combination product." In chronic obstructive pulmonary disease (COPD), there are "anything from 2.5 to 10 million sufferers, but less than 100,000 patients receiving an optimal treatment." Patient inaccessibility to effective medicines, most acute outside of the nation's major cosmopolitan centers, is fast eating away at the Russian citizenry.

Nycomed President Jostein Davidsen presents Russia's Prime Minister Vladimir Putin Nycomed's future plant in Russia.
One of the greatest causes is lack of public funding: as a proportion of GDP, the World Bank estimates that state expenditure on healthcare approaches 4%, relative to 7% to 10% in many Western economies. Most people still pay for medicine out of pocket and, by calculation of pharmaceutical research group IMS Health, drugs sold through retail constitute 70.1% of sales. Furthermore, 'prevention,' a notion well worn in the West, is only now coming to popularity in Russia.

Therein lies the woe; therein lies the good. Nycomed Russia's president Jostein Davidsen points out, "There is a long way to go. But by looking at all of this, you can see that as a healthcare company, these are all upsides. These are all growth opportunities." It's rather a matter of making lemonade. Every year, companies can well expect to reach more patients, bring new products to the market, and broaden participation as state reimbursement becomes better funded. Celgene's country manager Victor Ferkovich, to wit: "Russia is one of the best places in the world for the pharmaceutical industry to help patients."

Failing healthcare is not only a social problem, but an economic problem, as well. So too is an undiversified economy. Finance Minister Alexei Kudrin declared in a 2010 Moscow news conference that oil and gas accounts for 25% of the Federation's GDP, and that the number must fall to 14% within 10 years. In the pharmaceutical sector, this means giving up a decades-old reliance on imports, which in 2010 approached 75% of drugs sold, according to domestic market research group Pharmexpert. As Viktor Geisler, country division head of Bayer Healthcare in Russia, maintains, it is perfectly reasonable that Russia should want to conceive a true domestic pharmaceutical industry: "You may call it strategic interest, or, more simply, you may say that a developed country with over 140 million inhabitants deserves its own pharma industry." In response, the authorities are taking sweeping, ambitious action.

Again, again, therein lies the good! Russia's GDP growth—4% in 2010 (World Bank)—is nothing to sound the trumpets about—at least not today. But its pharmaceutical market, currently valued at 14.8Bn USD, easily outpaces world growth rates. (Globally, IMS Health expects a 5-8% compound annual growth rate through 2014.) This year is looking up: to quantify, Pharmexpert forecasts 15-21% growth in 2011. While some are less optimistic, barring disaster, a minimum growth rate of 11% is all but guaranteed—the charming 'BRIC' double digits.

Ivan Blanarik, managing director of Boehringer Ingelheim in Russia, speaks to what the entire industry believes. "I think the one logical headline, for emerging markets, and Russia, is, simply, 'Growth,'" he says.

Reckitt Benckiser Russia general manager Bruno de Labarre is a bit more blithe: "In a Western European country, you might oscillate between -2% and +2% growth, and perhaps you are a hero if you grow the business by 2.5 percent. What is the fun in that?"


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